Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

What opinion should an auditor express for a nonissuer using both FIFO and LIFO inventory methods?

1. Unmodified opinion.

2. Adverse opinion.

3. Qualified opinion due to a lack of consistency.

4. Qualified opinion due to a departure from GAAP.

The correct answer is: Unmodified opinion.

In this scenario, an auditor would express an unmodified opinion for a nonissuer that uses both the FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) inventory methods, as long as the financial statements are presented fairly in accordance with generally accepted accounting principles (GAAP) and the use of both methods is disclosed appropriately. Using multiple inventory valuation methods is permissible under GAAP, as long as they are applied consistently and disclosed adequately in the financial statements. If the auditor finds that both methods are used correctly, applied consistently, and that any effects on financial statements are properly disclosed in the notes, the auditor can issue an unmodified opinion. This opinion indicates that the financial statements are free from material misstatement and provide a true and fair view of the company's financial position. The options related to adverse and qualified opinions suggest significant issues with the financial statements, but if the use of FIFO and LIFO does not distort the financial presentation or violate GAAP, then an unmodified opinion is indeed appropriate. This reflects a proper understanding that the use of these methods in itself does not warrant concerns unless they lead to inconsistencies or misrepresentation that affects the financial statements materially.